We are preparing to sign an LOI, but we are worried that a minor client delay or a temporary drop in our monthly revenue during the diligence window will allow the buyer to trigger a material adverse change clause and cut our valuation. How do we negotiate these terms to protect our price?

Question

Tyler Smith · Accepted Answer

The period between signing an LOI and closing the deal is a high risk zone where buyers look for any excuse to renegotiate the purchase price, often using a Material Adverse Change or MAC clause as their leverage. To prevent a temporary operational dip from wrecking your valuation, you must negotiate a highly specific and limited definition of what constitutes a MAC in your purchase agreement. Never agree to a broad, subjective clause that allows the buyer to walk away over any minor drop in performance. Instead, insist on clear quantitative thresholds and carve outs. Define a material adverse change as a sustained decrease in revenue or EBITDA of fifteen to twenty percent over a consecutive three month period, rather than a single bad month. Additionally, negotiate standard industry carve outs. External market fluctuations, changes in general economic conditions, regulatory shifts, or industry wide downturns should be explicitly excluded from the definition of a MAC. During this critical diligence phase, keep your leadership team completely focused on your quarterly Rocks and weekly Level 10 Meeting metrics. Your scorecard is your early warning system. If you see a key metric drifting, use IDS to solve the issue before it impacts your monthly financial statements. By tightly defining the MAC clause with specific financial floors and maintaining absolute operational discipline through your EOS tools, you strip the buyer of their ability to use minor, short term variances to re trade your negotiated multiple.